general obligation bond

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General Obligation Bond

In the United States, a municipal bond in which the issuing locality pledges to use all revenues at its disposal to pay bondholders, including the raising of property taxes. Should a sufficient number of residents not pay their property taxes that it impacts revenue for bondholders, the terms of the bond legally require the municipality to raise property taxes to make up the shortfall. There are two basic types of general obligation bonds. A limited GO allows for the raising of property taxes up to a certain percentage, while an unlimited GO theoretically allows the municipality to levy taxes of up to 100% of a property's value. Because an unlimited GO provides a great incentive to pay property tax on time, and because many states only allow such a bond to be issued following a vote on the matter, credit ratings agencies usually rate them higher. However, both types of GO are generally rated highly.

general obligation bond (GO)

A municipal debt obligation on which interest and principal are guaranteed by the full financial resources and taxing power of the issuer. This broad promise makes a general obligation bond of higher quality than issues secured by a particular project or a more limited guarantee. It also results in lower returns to bondholders. Also called full-faith-and-credit bond. See also revenue bond.

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